Peter Berkanish
St. John's University School of Law
American Bankruptcy Institute Law Review Staff
In In re Madison Square Boys and Girls Club, Inc., a bankruptcy court in New York held that the debtor could not retain Epiq Corporate Restructuring, LLP (“Epiq”), as a claims agent, because Epiq’s retention agreement exceeded the role and function of the Clerk of Court, who traditionally manages the recordation of claims. Here, Epiq had an agreement to sell to Xclaim Inc. (“Xclaim”) information related to creditors to facilitate the sale of such creditors’ claims in exchange for Epiq receiving a percentage of commission upon each sale.[i] Ordinarily, a clerk does not have the authority to sell such information. Thus, Epiq was not able to be retained as a claims agent while it was still subject to the agreement with Xclaim.[ii]
On June 24, 2022 Epiq entered into an Access Agreement (the “Access Agreement”), with Xclaim that provided for the sharing of data.[iii] More specifically, Epiq provided Xclaim with direct access to Epiq’s claims register within three business days of the creation of such register or the filing of a bankruptcy petition.[iv] In exchange, Xclaim paid Epiq a 10% fee on commissions of trades claims through Xclaim’s website for trades that Epiq is the court appointed claims agent.[v] Epiq represented in the Access Agreement that it has “exclusive ownership rights over the claims registers in cases where Epiq serves as a claims agent.” On June 29, 2022, the Madison Square Boys and Girls Club, Inc., a debtor that filed for relief under chapter 11 of the Bankruptcy Code, moved to appoint Epiq as its claims agent.[vi]
Claims agents are often retained “to assist the [c]lerk . . . with noticing and claims-processing tasks that the [c]lerk . . . would normally perform.”[vii] A court retained claims agent must adhere to the same rules as a clerk. A clerk is subject to the Code of Conduct for Judicial Employees, which consists of five Canons.[viii] Here, Canon 2 was at issue.[ix] Canon 2 states that “a judicial employee should not use public office for private gain.”[x] Claims agents retained by the court under 28 U.S.C. § 156(c) are “subject to the supervision of the [c]lerk” and the claims agent’s duties are limited to providing notice and processing claims.[xi] Claims agents’ duties under § 156(c) are “perform[ed] as an agent of the [c]lerk” and are distinguished from § 327(a) activities, where the agent “performs on behalf of the debtor.”[xii] Therefore, Epiq’s retention under § 156(c) means that it cannot use “public office for private gain.”[xiii] Moreover, Epiq cannot “contract with a third party . . . to perform a task that the Clerk himself could not perform.”[xiv] Further, Epiq, acting in the clerks capacity, is only permitted fees that are specifically set forth in 28 U.S.C. § 1930.[xv]
Here, the court explained that the debtor’s motion to retain Epiq, using a “Form 156(c) Retention Application,” “makes clear that the retention is for services under section 156(c).”[xvi] Under section 156(c), Epiq has “no ownership interest to the claims data” even after being retained by the debtor.[xvii] The court found that the Access Agreement had Epiq perform “activities that [it] could not engage in, in exchange for a fee that [it] could not charge, and . . . is paid by a source not authorized under § 156(c).” Therefore, Epiq cannot be retained by the debtor as a claim agent while Epiq is subject to the Access Agreement.[xviii]
Ultimately, the court established that if a claims agent is retained under § 156(c), the agent must comply with the standards set forth for Clerks because they are “an agent[] of the Clerk.”[xix] This makes agreements by claims agents, retained under § 156(c) for compensation paid by third parties impermissible because the agreement is outside the duties that a Clerk is permitted to perform.[xx]
[i] See In Re Madison Square Boys & Girls Club, Inc., 642 B.R. 487, 496–97 (Bankr. S.D.N.Y. 2022).
[ii] See id. at 497.
[iii] See id.
[iv] See id. at 493.
[v] See Id. at 489.
[vi] See id.
[vii] See id. at 487.
[viii] See id. at 492.
[ix] See id.
[x] Id.
[xi] Id. at 491.
[xii] Id. at 492 (distinguishing that “Section 156(c) Application should exclude those duties that would not be performed by a Clerk of Court [including the 327(a) Activities]; such services should be the subject of a
separate application to and order of the Court.”).
[xiii] Id. at 487, 494 (explaining Canon 2 prohibits the same act by a Clerk).
[xiv] Id. at 492.
[xv] Id. (citation omitted) (describing fees charged by a Clerk when commencing appeal, filing a transfer of claim, providing a copy of an “electronic record stored outside the court’s electronic case management system.”).
[xvi] Id. at 494 (explaining that Epiq would not have access to the claims data if Epiq was not retained under § 156(c)).
[xvii] Id. (acknowledging that the data belongs to the U.S. Courts).
[xviii] Id. at 496–97.
[xix] Id. at 488.
[xx] Id. at 494-95 (§ 156 provides that compensation is be given by the debtor’s estate for any “facilities or services, either on or off the court's premises, which pertain to the provision of notices, dockets, calendars, and other administrative information to parties in cases filed under the provisions of title 11.”).